U.S. July personal spending seen up 0.2 percent

By IBT Staff Reporter On 08/28/09 AT 6:24 AM

A surge in auto sales as drivers rushed to take advantage of the cash-for-clunkers scheme probably nudged U.S. consumer spending higher for the third straight month in July, according to a Reuters poll.

The survey of 67 economists forecast personal spending, the engine of U.S. economic activity, probably rose 0.2 percent in July after June's 0.4 percent gain.

Spending last month was believed to have been supported by the government's cash-for-clunkers program that gave drivers a discount to trade in their gas guzzlers for new fuel-efficient vehicles.

Personal income, including wages, salaries and income from such sources as rent, was projected to have rebounded by 0.2 percent in July after falling 1.3 percent the previous month.

We expect that there was soft inflation, moderate consumption growth, and real income growth in July, JPMorgan Chase wrote in its outlook. The July personal income report may also show the first gain in employee compensation since last October.

The widely watched gauge of inflation pressures, the core personal consumption expenditure price index, or PCE, is expected to rise 0.1 percent after a 0.2 percent gain in June. The core PCE strips out often-volatile food and energy costs.

The Commerce Department will release the U.S. personal income report on Friday at 8:30 a.m. EDT.

The following is a selection of forecasts and comments from economists:

RBS

Forecasts: Personal Income +0.1 percent

Personal spending +0.2 percent

Core PCE index +0.1 percent

The July personal income figures should be the first in several months that were not distorted by transfer payments from the 2009 fiscal stimulus package. The better-than-expected July employment data point to the possibility of slight advances in overall personal income and wages and salaries in the period. Consumer spending likely rose in July, but the entire gain (and possibly more) will probably reflect the Cash-for-Clunkers-induced jump in auto sales. Given a flat CPI reading for the month, real outlays likely advanced somewhat as well.

FTN FINANCIAL

Forecasts: Personal Income Unchanged

Personal spending +0.2 percent

Core PCE index +0.1 percent

We expect personal income to be unchanged in July. Personal consumption is likely to increase 0.2 percent in July, off 1.8 percent from this time last year. Unfortunately, even the slower pace of spending continues to outpace income growth, which means household debt is not shrinking. As a result, despite slow growth in nominal consumption, real spending in the consumer sectors continues to trend downward. This is not shaping up to be a consumer-led recovery.

MORGAN STANLEY

Forecasts: Personal Income +0.3 percent

Personal spending +0.3 percent

The employment report showed the first increase in aggregate weekly payrolls since last August. So personal income appears poised for a modest rise. Meanwhile, a sharp jump in vehicle sales should more than offset a dip in retail control, leading to a similar-sized gain in overall consumption. The personal savings rate is expected to hold steady in July following some big swings over the course of prior months that were tied to a special one-time stimulus payment.